A lawsuit filed by a Florida investor against General Motors over the age-old practice of “channel stuffing”, or sending inventory to dealers and recording it as a “sale”, so that revenue numbers can be pumped up while the vehicles languish on dealer lots. The practice of channel stuffing is universal in the auto industry, but in this case, the consequences are much broader.

The specifics of the lawsuit, which hinge on specific phrases in the IPO prospectus, can be found here. The class action suit is unlikely to do any serious damage to GM, and will likely be the site of a long, protracted legal battle. The implications of channel stuffing are what really matter, and may provide a glimpse into both General Motors, and its government stewardship.

There is a political argument to be made for all of this, with GM’s financial health being integral to President Obama’s re-election, and a validation of the auto bailout and his economic policies. The Treasury still owns a 32 percent stake in GM, and selling their shares now would mean a major loss of taxpayer money. If GM’s fortunes were to reverse, than a quick exit, perhaps at a profit, might be possible.

The inflated inventories and “channel stuffing” aren’t just a manipulative way to make GM’s numbers look better than they are – they also expose GM to a potentially dangerous financial situation similar to 2008. General Motors, like any other car company, must sell the cars it builds. Its inventories are much higher than other manufacturers. Prior to the bailout, GM was caught out with large inventories of full-size trucks and SUVs at a time when a poor economy and rising gas prices made them unattractive to consumers. This same scenario occurring again isn’t inconceivable.

70 Comments on “General Motors, Channel Stuffing And The Return Of 2008...”

If you’re going off of truck sales alone, you have to remember manufacturers do this during any major retooling of a plant. The 2014 GMT platform (whatever it will be called) is a all new truck. Channel stuffing is giving their plants breathing room during their launch.

Furthermore, even a rookie Wall Street securities analyst knows the difference between manufacturer sales and dealer sales. And if he or she does not, the manufacturers issue reminders once a month when they publish dealer inventory.

GM has warned that truck inventories would increase during a retooling effort. Whether or not they have incrased far more than necessary is a good question… but it’s not an open-and-shut case at this time.

However, there’s also the interesting coincidence of an increase in GM’s fleet percentage. I didn’t get the details from the conference call a few days ago and don’t have time to follow up on it but I did catch that fleet was up to 36%. GM reps on the call said it was “timing” and fleet would return to more normal levels next month. Interesting… one would think that fleet percentage would go below normal levels next month if it’s timing.

The financial analysts I’m following seem to think the 2015/2016 time frame seems the best bet if nothing upsets the applecart, like Opel in Europe or the strikes in South Korea or the French connection.

Since I divested in the 2007/2008 time frame I can read these articles without the fickle fingers of fear wrapping themselves around my financial heart.

But don’t worry, if GM needs another bail out or hand out, GM will get another one, no matter who’s in the White House or who controls Congress. The US government is not going to let GM fail (again). We need to accept that GM is on par with Fannie and Freddie and the US Postal Service.

The trick is for the US government to get individual Americans to want to buy GM products. Imagine what GM’s financial position would be if EVERY AMERICAN bought a GM product when it came time for them to buy a new vehicle.

I’m much more inclined to see more Americans choose to buy a Ford vehicle because they are clearly better, more up to date, and have less corporate baggage to lug around than GM does.

For those inclined to buy Chrysler products, like I did when I bought a Grand Cherokee, we should keep in mind that even though most Chrysler products are still made in the US, all we’re doing is helping Italy because by buying Chrysler we’re sending all the profits to Italy. Just like with Toyota, Honda and Nissan, Hyundai, BMW, Mercedes, et all, we’re sending all the profits to Japan, Germany or South Korea.

I don’t mind that. These companies provide jobs for Americans in America, building and selling cars to Americans in America. That ain’t all bad.

In order to reverse that profit-flow to overseas, we, as a nation, should institute economic and tax policies that favor in-country production in the US rather than punish successful producers in the US and chase them away to other nations to produce there and import to America.

At this point FIAT is a de facto American company with American John Elkann and Canadian Sergio Marchionne running the worldwide automotive empire from Chrysler’s Auburn Hills engineering department. These guys have invested far more in America than Europe. Chrysler has retooled and added to every factory it has in the last 2 years. Chrysler employees more American and Canadian workers than Honda and Toyota combined.

Chevy just doesn’t want to be selling from an empty wagon, the armchair CEO’s would be whining if GM ran out of trucks during the model change, so there’s no satisfying the American car industry haters. I guess these fools would be happier if GM was sold to the Chinese.

We bribed Fiat with $1.3B to take Chrysler’s carcass off our hands. We could have done the same for GM but no one would touch them with a 10-ft pole. Not even the Chinese.

There was even talk about merging GM and Chrysler. That never happened. That would have been an exercise in the blind leading the blind around in circles.

Dumping GM would have been the prudent move, but we couldn’t get any takers, at any price. Dumping Chrysler worked wonders for Chrysler. It would have done the same for GM, but no one wanted that trainwreck.

As it is now, we’re stuck with the GM albatross around our neck for eternity because the government will not let GM fail, no matter how many future bail outs it is going to cost the taxpayers in perpetuity. Just like the US Postal Service, Fannie and Freddie.

So, ultimately, it is up to the buyers of new cars. If they support bail outs, hand outs and nationalization, they should buy GM. If they don’t, they’ll buy something else. Channel stuffing does not make for increased sales. All it does is back up a dealership with unsold stock.

This is not about hate. It is about prudent financial moves. Bailouts of the financial sector have a reasonable chance of getting paid back. Bailouts of a failed auto manufacturer have zero chance of getting paid back.

Bailing out GM is predicated on the assumption that GM will sell enough cars to be a viable, profitable, self-sustaining auto manufacturing company. That wasn’t true before the bankruptcy and it is not true now.

Chrysler was given up as a lost cause and with prudent Fiat management and a lot of help from Daimler, Fiat turned that puppy around.

And for those who doubt who calls the shots at Chrysler, they’re in denial. Fiat is increasing its ownership stake in Chrysler. To me that makes Fiat the boss, not Chrysler.

@hghdesertcat-
“This is not about hate. It is about prudent financial moves.”

“Bailing out GM is predicated on the assumption that GM will sell enough cars to be a viable, profitable, self-sustaining auto manufacturing company.”

Yes, this is about hate to ignore the reality that GM is very profitable and doing well here and around the world. The products sell for more while incentives and fleet sales are falling. Revenues are strong. You claim to care about the US economy but disregard that GM is exporting vehicles from America in increasing numbers. The company has invested more in America than any potential costs of the bailout. The costs to our economy would have been in the hundreds of billions if the company had been allowed to be taken down by a banking crisis, not a few tens of billions. GM made $9B last year. How much will they have to make before you see them as viable?
btw- Consumers should by the product that best suits their needs, not by direction of government, or for political reasons.

Sorry Doc, HDC said nothing out of line, but now you have. He is perfectly entitled to his opinion, and GM provided sufficient evidence by recently becoming bankrupt. You may disagree, but throwing out the hate card is wrong. Either you are saying what he said is hateful, it’s not, or you are imputing a motivation to his post which is uncivil and changes discussions into shouting matches. Either way, it’s wrong.

@Landcrusher- Thanks for the good advice!
@highdesertcat- Sorry for crossing a line.

I do get carried away at times, but still wonder how many more quarters of good profitability it will take in this down market for recognition that the company is strong and not only viable, but growing very nicely around the world.

Maybe we can agree on that, in spite of GM’s current sales successes, they are still not able to stand on their own two feet with the total number of sales they are enjoying today.

I’m not privy to GM’s books but any company, Ford, or Toyota or whoever, would be listed as being in a pretty precarious position if they were to find themselves in the same identical situation as GM.

Whatever profits GM is making with one hand is being flushed down the toilet with the other. European operations, South Korean operations and Canadian operations are a real burden on GM, and that’s even before the UAW pension and healthcare benefits funding come into play.

GM’s best sellers are downright antiquated. Can’t get around that. GM’s financials and its stock are in the tank. GM’s international workforce is pushing GM’s management for answers it is not able to provide because of GM’s limited financial resources. They’re not going to upgrade Oshawa because there is not enough demand for GM’s products. So, for national political reasons GM is retreating back to production in the US.

Channel stuffing and the latest sales incentive of lend-lease before you buy, both serve a purpose to increase sales at GM. The only way for GM to become profitable again and self-sustaining is to sell a whole lot more than what they are selling now.

For GM fans and true believers “Baseball, Hot dogs, Apple Pie and Chevrolet may go together in the USA”, but unless GM increases sales it will remain where it is at right now and may even slide back some unless they can bring out some up-to-date half-ton pickup trucks and high-content value-priced Malibu sedans, two segments that are the bread and butter for most auto manufacturers.

Fleet sales are great but there is very little profit in them and flooding the used-car market with fleet cars afterwards is like shooting yourself in the foot if there was no demand for your cars to begin with.

Channel stuffing really is putting your dealers in a bind because they couldn’t move what they had rapidly enough to draw down the stash of vehicles stored on the distributor lots. Forcing them to take in more just takes up much valued space on the dealer lots, by repositioning the glut.

And as far as the bailouts are concerned, it really depends if one is on the receiving end of the bounty, or on the paying end that determines how one feels about it.

Most working Americans did not derive ANY benefit from paying for the bailouts, handouts and nationalization of anything, anywhere, at any time. And they won’t in the future either. Everyone noticed the cost of rice and rent going up, though.

If people support the bailout of GM and the UAW, they should all flock to buy a new GM product, today. That hasn’t happened.

What I personally have noticed is that people did favorably view the Government’s dumping of Chrysler and pimping it to Fiat (for a bribe of $1.3B) and many of those people are voting with their wallet in favor of Italian-owned Fiat products, like Chrysler.

In fact, I favored the dumping of Chrysler so much that I was actually motivated to buy a 2012 Grand Cherokee for the wife. Now that is putting MY money where my mouth is.

So, we all have our points of view. And it all depends on whether we are the ones paying for the bennies or are benefitting from the bennies someone else is paying for.

Ultimately, the buyers vote with their wallet just like they voted with their feet in the past.

@highdesertcat- So far, GM has generated profit every quarter since shortly after exiting bankruptcy. The $9B operating profit last year was a record high in comparison to Old GM, despite dollar sales much lower than $200B Old GM had in the best years when GMAC was including and adding $1B or so to the bottom line.
That $9B was NET after taking away all of the European losses, which have become smaller.

They keep generating strong profit even when the market shifts away from trucks/SUVs to smaller cars currently. Malibu was the second best selling car in the country last month, though I don’t know how many sales were of the outgoing model to fleets. Cruze is fresh, new, and was near the top of the best sellers list last year. We will have to see how August goes, but initial signs are the new Malibu is a great success.
I can understand your view that the company still has problems, but you seem to ignore the fact of strong profits they are now making with much lower sales volumes here than in the glory years.
Also Fleet business, up front, is exactly the same profit to the manufacturer as any other sale. Every deal goes through a dealer, who skinnys his margin, but the wholesale prices are the same to GM. The only financial downside is in the case where the manufacture guarantees a resale price. I do not believe that practice is occurring at GM these days, but would be glad to be informed if I am wrong about that. I agree with the problem of cheapening the brand, and GM also recognizes that and have greatly reduced their fleet sales %. Beloved Ford has far higher fleet sales % than GM, these days.
I would agree that GM has too much aging product, very limited model range at Cadillac and even Buick. That is why It is particularly impressive that they can maintain the highest transaction prices of any full line maker even after incentives are deducted.

This is a “non-story”. GM reported that they would be ramping up inventory to supply the 2013 model change over back in December (http://news.pickuptrucks.com/2011/12/gm-to-stagger-full-size-truck-plants-for-new-2013-pickups.html).

20 dollars a share today, it needs to be 58 for the taxpayer to come out ahead. Not gonna happen.

They screwed private investors while handing 10 percent to the unions. Is anyone surprised the stock is where it is? Do the people who cheered the bailout thing investors are stupid enough to buy this stock any longer? They can’t force someone to take an interest.

So now we have channel stuffing and government buy ups of inventory. Only this time the Treasury is in the position of owning this stock while these business practices occur.

The problem with the retooling story is that it’s being used as an explanation.

Either GM was properly straightforward in their reporting and the plaintiff and reporters are nitpicking or otherwise at fault for not getting the properly plain warning. Or, GM is being a typical large institution trying to get over on everyone and hiding behind its size as an excuse for being a big bunch of cheats.

Our problem as a country is that this shouldn’t be a hard thing to decide before moving on to the next decision. GM should be taking a stock hit for dishonesty. Politicians bragging about GM should be losing votes, and people should be losing jobs for letting it happen. Everyone learns not to spin financial reports, and the world gets better.

That’s just misleading bull.
– All sorts of games are played in the orders. It’s not a simple case of dealers getting what they want.
– Telling the dealers they need to stock up while depending on investors to connect one of a thousand press releases to put the lie to your financial statements is dishonest.
– I can foresee a bankruptcy in less than 35 years. That seems to be how long these fixes last.

I agree with you on eventual bankruptcy but I disagree on the thirty five year time frame. If its going to happen it will occur in the next ten to fifteen years, fifteen to thirty five years from now GM will have fully relocated itself to China. Akerson gave a speech I believe first quarter 2012 I saw where he claimed 70% of global GM production was already being produced there in eleven joint ventures.

“sending inventory to dealers and recording it as a ‘sale’, so that revenue numbers can be pumped up while the vehicles languish on dealer lots”

It isn’t a “sale”, it’s a legitimate sale. A lot of folks seem to have trouble understanding what “revenue” is.

For a company that uses accrual accounting (read: pretty much any corporation that has stock traded on an exchange), “revenue” is recognized when the money is owed by the customer, not when it is collected. “Cash flow” and “revenue” are not the same thing. This is a standard accounting practice, and there’s nothing wrong with it, per se.

Re: the inventory management issue (which genuinely does exist), part of this is likely attributable to the fact that GM maintains two separate channels for large pickups, as it did prior to the bankruptcy. Maintaining GMC-Buick as a third channel was a mistake; the resulting dealer network is too large, and the Chevy and GMC brands cannibalize each other in the process. The automotive task force should have insisted that GMC become a trim line, sold in the same stores as Chevys, in order to avoid that kind of internal competition.

That opinion is not supported by business reality. General Motors first surpassed Ford in sales many decades ago because of diversity of product offerings.

Buick-GMC is profitable, plus business for GM and contributes to GM’s high average transaction prices. The channel’s volume ranks 9th, just after value brand, Hyundai. I would be surprised if Buick-GMC dollar sales do not rival or exceed Hyundai.

The real error the auto task force made was forcing GM to kill off Pontiac, which would have been a great complement to the Buick-GMC lineup.

“General Motors first surpassed Ford in sales many decades ago because of diversity of product offerings.”

I suppose that one of the problem with GM staffers is that you guys still think that this is the 1930’s.

Sloan’s branding ladder is now dead. It could work when a “brand” was essentially a model or two, and when the competition had just a model or two. It doesn’t work when brands become diversified, and when cars of varying body styles end up with different nameplates and identities.

You can see the problem right here with the excess inventory. GM has to build largely identical GMC and Chevy trucks in order to keep two sets of dealerships happy and filled with inventory. These dealers aren’t just competing against Ford and Dodge (and to a lesser extent, TMC), but also against each other.

As we all know, competition has the effect of reducing prices, so you can guess what inevitably is going to happen when GM pits its own retailers against each other. Not exactly brilliant management.

GM currently has the highest incentives in the industry, and those high incentives were characteristic of GM practices prior to the bankruptcy. For all of this talk about the value of branding, GM vehicles have devolved into commodities that largely compete on price.

Do white collar workers at GM realize any of this stuff, or is that an inconvenient factoid that you folks ignore because it doesn’t serve your story?

“Do white collar workers at GM realize any of this stuff, or is that an inconvenient factoid that you folks ignore because it doesn’t serve your story?”
@Pch101: I think that is a unfair assessment. The internet does not represent the aggregate population your jump to conclusions mat would like to reference.

Knowing the GM dealer network, it was a brand that was associated with legacy contracts that once killed, was most likely impossible to revive. Rather than suffer the ‘loss of sales’ the trim line represented, it was easier to eat their vegetables and move on with the legacy cost.

An Automotive News article a few weeks ago noted that, for all of GM’s attempts to cast Buick as a maker of “premium” American cars, buyers considering a Buick most commonly compare it to…a Ford and a Toyota.

Isn’t competing with those two brands supposed to be Chevrolet’s job?

Seems to me that Pch101’s concerns about internal competition among GM’s various divisions are quite valid. It isn’t 1930 anymore.

In retrospect, Sloan’s brand ladder concept was doomed from the point that Ford proved it could sell a relatively expensive car – the 1958 four-seat Thunderbird – under a “low-price three” brand.

Only diehard GM fans, 70-somethings and (apparently) GM employees consider a Buick or a GMC to be a step above a Chevrolet.

For that matter, there are several posts on the Ford Edge review that criticize the Edge for having a transaction price similar to that of the Cadillac SRX. When a Ford can command the prices of a comparable CADILLAC, I’d say that the alarm bells need to start sounding, and not at Ford world headquarters.

@pch101- you can not address the reality that GM far exceeds the dollar sales of any other maker in the US, and also clearly makes far more profit here than anyone else, rivalling Ford’s global results. those are facts, regardless of your opinions that GM leadership is incompetent.

The presumption of knowledge on this site, at least by many, is laughable. GM is doing very well these days, particularly in north america. Their incentives do not look so big when compared to the very high prices the products command. They enjoy much higher margins, particularly on small cars, than any other maker.

“you can not address the reality that GM far exceeds the dollar sales of any other maker in the US”

Frankly, I find it to be quite bizarre that someone who worked at a company that once had 50% market share, now sees some reason to strut around like a proud rooster when that same company now struggles to maintain 20%. Spare me the market share machismo, please.

As for profitability, I’m glad that government intervention cleared out some of the dead wood that was created by your former bosses. While the bailout didn’t completely remedy the excess channel problem, it certainly helped, which allows GM to be more efficient than it once was.

Had it not been for the automotive task force and government funding, GM would be a footnote in history. Bailing it out was a necessary evil, but it’s a shame that some of you still don’t understand that the company failed because of people like you. As a taxpayer, I helped to pay for this party, so I would appreciate a thank you for not turning your pension into confetti.

“In retrospect, Sloan’s brand ladder concept was doomed from the point that Ford proved it could sell a relatively expensive car – the 1958 four-seat Thunderbird – under a “low-price three” brand.”

When Sloan created the concept, a “brand” was more similar to what a “nameplate” is today, with the core brand being General Motors. It would be akin to selling the Corolla, Camry, Yaris and Avalon through separate dealership networks, while positioning them in relation to each other.

This approach made a lot of sense when Ford was the 800 pound gorilla and had one model. It stopped making sense when mission creep set in and each brand aspired to be most things to most people by each providing a variety of models.

…GM currently has the highest incentives in the industry, and those high incentives were characteristic of GM practices prior to the bankruptcy…

Oh this gem again.

But you ignore the most critical factor.

Of the full line car makers, GM has the highest transactional price per vehicle sold too (one COULD technically declare Merc a full line maker with the Sprinter vans, but lets not get technical). That’s a very critical point. When you compare average transactional price to average incentive GM’s incentives become quite average compared to their industry peers.

And there is another factor. How much do dealers need to discount, or eat to move products. It’s a fun with numbers way to keep “incentives” down but still discount products. Prior to the tsunami, Toyota led that charge, with dealers eating over 9% on the average transaction to move product. Sure, Toyota factory incentives were lighter, but dealers were having to fill the gap to move iron. In that same survey, I was surprised to see that Ford was commanding the least dealer price cutting to move product.

One point of data a situation does not show. GM wasn’t making a penny on a car it sold prior to the BK either – it is now enjoying record profits.

But Ford is the fleet queen du jour. Last data I saw had GM in third place of the Detroit bit 2-1/4 and moving further and further away from fleet sales. They also have two models specific for fleet duty (and you could build a good argument that the Crown Vic in its last years was a pure fleet duty vehicle that happened to have a handful of retail sales).

Don’t matter – your mind is made up on this one so no point in continued debate.

@pch101- as usual, you think you know a lot more than you do. Do you dispute that GM made record profits last year, or do you prefer to ignore that fact? As for market share- GM’s decline is about the same as Ford and Chrysler at the hands of global competition that didn’t exist in the years GM held 50%. It is a very simple equation that even a finance guy can understand. If you cut a pie into 3 pieces they are a lot bigger than when you cut it into 10.

you always resort to personal attack when the facts don’t support your argument.

“Do you dispute that GM made record profits last year, or do you prefer to ignore that fact?”

GM’s profit in FY 2011 was less than half of that of VAG’s, even though they sold about the same number of units. Go ahead and thump your chest about that, if that makes you happy.

But in any case, you miss the point. GM’s post-bankruptcy turnaround occurred in part because the new GM was forced to reduce its North American channels. Had the Old GM management had their way (and yours), that reduction wouldn’t have happened. You would have screamed about the importance of market share and scale for the sake of it, and GM would have never shed that corporate flab.

You’re trying to take credit for the work of outsiders. If Rick Wagoner remained in charge, GM would have liquidated. It was because of people whose ideas you dislike that GM is still here; if we listened to people like you, GM would have been toast.

“GM is doing very well these days, particularly in north america. Their incentives do not look so big when compared to the very high prices the products command. They enjoy much higher margins, particularly on small cars, than any other maker.”

Doctor olds, I am as big a defender of GM as anyone else. Agree with all your points above, however, that is not what the article is about. Channel stuffing has always been a problem at GM and it is time they do something about it. Cut prices, increase marketing, increase incentives, increase fleet sales, reduce lease rates or if you don’t want to be doing any of those then cut production. There is no point maintaining a 3 month inventory. One look at cars.com shows how serious the problem is. Most GM models are at over 3 times the monthly sales numbers, while Toyota, Honda, Hyundai and even Ford are less than 60 days. Profits and transaction prices are way above 2008 levels, but that doesn’t mean GM should forgo profits from maintaining a leaner inventory. Learn from the Nox and Terrain twins, which have been in short supply since day one, 4 years after their release and production raised 5 times. The Nox and Terrain command the highest transaction prices for their segment and have the lowest incentives with near zero fleet sales. The day GM realizes selling 10 cars at $1000 profit each is better than selling 20 at a $100 profit is the day they are truly out of the woods.

@alluster- When I wrote old GM is gone, I was referring to the fact that Old GM had no ability to control labor costs. They were better off to get something out of workers who had to be paid whether there was any work or not. Those dynamics are ancient history. New GM shed at least $8B a year in labor costs just for the UAW retiree health care and the jobs bank both gone with the UAW contract of 2007, though VEBA, responsible for $7B in annual savings was not fully implemented until 2010. They no longer have such pressure to run the plants and price ‘em low to make ‘em go.

GM says they are building inventory for changeover. They may be fudging, though I doubt it, given their willingness to stop production as demand requires. GM does understand the importance of unit profit, which is why they market vehicles that sell for substantially more than the competition. They even make money on Sonic, the only car in its class produced in the US. It is pretty hard for me to believe that dealers are being forced to take huge numbers of product for which they foresee no demand. The big trucks and SUVs are in the last year of their lifecycle. That is the basis for the discounting of these specific vehicles. GM is fully aware that dealers won’t take any more if they can’t move the ones they have.

I’m glad GM is doing well, but let’s be real here— if I filed bankruptcy and was allowed to keep all my good assets and jettison all my debt, I’d be sitting pretty too. But it wouldn’t be because of my amazing awesomeness, just the opposite. So let’s keep our heads on straight about GM.

@toxicroach- sorry if i expressed the view the gm is amazingly awesome. that was not my intent. my purpose is to point out how different the circumstances are today than they were in the bad old days. If GM was gobbling market share, I might claim they are awesome, but the facts don’t support that. On the other hand, the company did make record profit last year and seems to be on track for long term sustained profitability.

The fullsize truck and SUV market is America’s most important market and GM is basically tied with Ford for leadership of that market. It would be irresponsible bad management for GM to readily give up marketshare in this market while they upgrade their truck. It’s a marketing tragedy if a longtime Chevy customer is forced to buy a Ford or Ram because they’re no GM trucks on the lot. This “channel stuffing” charge is propaganda.

No wonder the local dealer is advertising upwards of $10k off certain high-trim Sierras, Silverados, Yukon/XLs, Suburbans, and Tahoes. They must be swimming in the things. This is deep midwest/south truck country, too, where you can find $60k mobile homes with two $50k Yukon XL Denalis parked outside. EVERYONE has one of these things.

I think the lawsuit is laughable. They are claiming economic loss based on channel stuffing, which probably would have helped prop up the stock price if anything else, but I digress.

Can we call agree that the reason that GM’s stock isn’t at what it was during the IPO isn’t because of channel stuffing? There are a lot of other factors that are far more important (Opel being number 1).

“Can we call agree that the reason that GM’s stock isn’t at what it was during the IPO isn’t because of channel stuffing?”

Sure, I’ll agree with you.

Stock prices are a function of future expectations. The auto market is driven largely by consumer consumption and credit cycles. The stock prices are largely a reflection of market uncertainty about the economy.

As I write this, Ford is trading at $9.35, about 32% below its 52-week high. That percentage of decline isn’t much different from GM’s during the same 52-week period, and I don’t think that many knowledgeable people would claim that Ford isn’t a well managed company.

Kreindler writes:
“The practice of channel stuffing is universal in the auto industry, but in this case, the consequences are much broader.”

What Kreindler should have written:
“The practice of channel stuffing is universal in the auto industry, but in this case, GM’s doing it, so in this election year, we’ll get a ton of flaming posts from liberals and conservatives, which makes our traffic numbers look better.”

Dr. Olds,
Do you actually work for GM? In what capacity? And, even if we believe you do, why would that not reduce your credibility when you spout the success of the company?

Clearly, the world of investors is not bullish on GM. I have been considering buying some Ford stock, and I have to say that everything that turns me off about Ford is even worse at GM even after the unfair bankruptcy maneuvers.

@Landcrusher- I retired from GM in 2008 after 40 years, starting with Oldsmobile in 1969. Experence with manufacturing, sales, service, quality and product engineering gave me a perspective with depth and breadth that is rare, particularly in the blogosphere.
You are right that the stock market doesn’t like Ford or GM, nervous about the state of the economy here and around the world. GM’s fundamentals are far better than Ford, as their global volumes and success dwarf Ford and their debt approaches zero. GM is making a lot of money, particularly here, including record profit last year barely out of the shadow of bankruptcy and lots of politically based opposition in a still depressed market. The continued to make money as the market has shifted to cars. The Old GM is dead. The new company is in a completely different position and is strong.

Thanks Mikey! I don’t mind disagreement, but the personal attacks seem rather juvenile. GM has never been perfect, but the issues are far more complex than most understand, and certainly financially depleted all three US makers. 2/3 of the industry was forced into bankruptcy and the other 1/3 is buried under a mountain of debt.

As former customer and vendor, I can say the cars are better, but I keep seeing more of the same from management. I will believe there may be less deadwood, for now.

Still, the basic issue here, as I see it, is not whether the channel stuffing was justified, but whether investors were mislead. If there was no notation on the truck sales numbers, then I say that’s dirty pool. How would you disagree? Is it legally defensible is a question old and new GM management both seem to think is somehow important. I don’t care.

GM’s “fundamentals” are not better than those of Ford. Its financial performance is lackluster in many ways, while GM’s European operations are a basket case. Ford’s European operations are in far better shape, both from a financial standpoint and the competitiveness of its vehicle offerings.

The line-ups of Buick and Cadillac don’t effectively compete with Lexus or the Germans (their supposed targets, according to GM management). The only division that has a reasonably competitive, coherent line-up is Chevrolet. I’m not seeing how GM is all that much “better” than Ford. GM’s vehicles, with a few exceptions (CTS, Corvette, large SUVs), certainly aren’t better.

I can’t go into the specifics but the company I work for has a hand in the GM hiring process, since January I have had to add I believe four new locations into the system where new employees would be hired. I would say that is a small sign of growth.

@geeber- look at two numbers- Ford’s debt is 20 times that of GM and their sales globally are less than 60% of GM. I am not knocking Ford, but, from a business perspective, these are some pretty stark advantages GM has over Ford.

GM achieved its results as the result of taxpayer-funded bailout that wiped out most of its debt and gave it a big chunk of money. Ford, meanwhile, righted the ship on its own.

Ford has proven that it can successfully make the hard choices necessary to ensure a viable business. GM has proven that it can successfully go to Washington, D.C., and beg for a bailout.

Huge difference.

I could look “better” than my neighbors from a financial standpoint if the federal government wiped out my mortgage and then gave me an infusion of taxpayer money.

I’m also not impressed by the reference to sales figures. How many of GM’s sales are low-profit vehicles made in China? GM’s European operations are a basket case that, under American accounting standards, should be liquidated. Ford’s European operations are much healthier.

For that matter, GM was the number-one ranked company in the United States…right up until it was forced to seek a bailout or go under.

When the sh!t hits in Japan do you think thier government is going to let honda die? Would the Germans have let VW die in it’s darkest days? The french? Hell even the british tried to save what was left, w/o understanding 100 years of relying on the colonial system had left its industry completely uncompetitive or repairable (my grandmother has pictures of shops in the 70’s with signs saying “goods not made in england”. Just as Carter having the balls to tell america that the results of WWII had allowed us to live in a dream land for 30+ years and was about to end and we better adjust and adjust quickly was derided, he was quite right (first USW, then the remainder of the rust belt and NE less the UAW and finally the UAW).

Depending on how badly shit hits the fan in Japan, they may not have a choice to save their industry. Worse, what if they did have some resources but multiple industries were failing? Which would you save, a multinational like Fuji Heavy Industries who has fingers in several pies or Honda? (the automobile arm of it)

My favorite was this:

“Just as Carter having the balls to tell america that the results of WWII had allowed us to live in a dream land for 30+ years and was about to end”

The Japanese government just recently bailed out and merged Sony, Toshiba, and Hitachi small and medium screen display manufacturers together and called it Japan Display. This is exactly what the South Korean government did for Hyundai and Kia when they were on the rocks a decade ago.

All America’s trading partners are state socialists at home and held up as pure capitalist heroes over here for political reasons.

It’s decadent so many Americans don’t root for the home team and root for state socialist products from nations that we were at war with not that very long ago.

I think the point he’s making is Americans are quite ignorant of what really goes on in the home nations of the foreign marques and happily purchases one without giving a glace to the current domestic competition.

Oh and yes you should consider shunning Japanese marques not for the war, but because their PR, marketing, and past reputation have convinced you into thinking they are superior when that is no longer the case. I stack a Ford product up against anything out of Japan and on the basis of quality they are at least equal. I can’t speak for Chrysler but I would say this applies to some GM products as well.

Based on the findings of Consumer Reports and TrueDelta, the domestics are not yet equal to the best of the Japanese (Toyota and Honda) in terms of reliability. I’ll take those actual findings over the opinions of domestic apologists or employees of those companies. (Not to mention that the independent mechanics and others who see all makes of vehicles on a regular basis confirm those findings.)

These findings have been supported by real-world experience among friends and family who own GM, Ford and Chrysler vehicles. The only car that has equaled our Hondas in reliability has been my wife’s 2005 Ford Focus SE. Based on our experience with that car, we would buy another Ford, although I’m concerned that the automatic transmission in the new Focus has been troublesome.

GM and Chrysler vehicles all required more major repairs than our Hondas, or the Hondas and Toyotas of friends and family.

For example, my mother-in-law’s 2004 Malibu with about 70,000 miles on the odometer feels “looser” and has had more problems than our Accord with 180,000 miles on the odometer.

The Accord is simply a better engineered and manufactured product. And there is nothing to indicate that the current GM and Chrysler products are better than their Honda/Acura counterparts.

The “Wait until the next one comes out!” cry has been heard for at least 30 years now, particularly from GM.

I think things have changed to the point that model to model comparisons need to take place rather than using the brand/origin which was pretty safe ten years ago. good for the US based companies, but when they claim parity it still sounds like they aren’t serious about quality.

You have to be clearly ahead before you claim victory or you can’t be trusted.

I think you overstate the hero thing. Sure, examples of good things are held up as such, but ask any true free market fan who is still REALLY the most free and they will likely, grudgingly stick with the US. At least the right to work states of the US.